Marginal Standing Facility (MSF) Rate- Definition/Meaning of Marginal Standing Facility (MSF) by Reserve Bank of India (RBI). What is MSF?
Marginal Standing Facility (MSF) is the rate at which scheduled banks could borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities.
Banks can borrow funds through MSF during acute cash shortage (considerable shortfall of liquidity). This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively.
The Marginal Standing Facility (MSF) is pegged 100bps or 1 % above the Repo Rate.
To provide greater liquidity cushion the Reserve Bank of India (RBI) introduced Marginal Standing Facility or MSF. RBI announced the introduction of MSF on May 3, 2011 and it was effected from May 9, 2011.
Reserve Bank of India, in it’s annual policy statement, has declared “The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows.”
Marginal Standing Facility Rate: Under this scheme, Banks will be able to borrow upto 2% (wef 17/04/2012) of their respective Net Demand and Time Liabilities (NDTL).
Some Important Questions on Marginal Standing Facility (MSF):
1. What is the Present Marginal Standing Facility (MSF) Rate?
Answer: 8.75% (As of October 29, 2013) [RBI reduced MSF by 25 bsp on October 29, 2013 to 8.75% from 9%]
2. What is Marginal Standing Facility (MSF)?
Answer: Already explained above.
3. MSF is costlier than Repo Rate, then Why do banks borrow money from RBI using MSF?
Answer: Yes, MSF is 1% costlier than the Repo Rate. But usually banks borrow money from RBI during acute cash shortage.
If you have any queries/questions please ask in comment section.